Chance of another Depression

[audreyh1]

None of those thing prevent a depression. The question was about prevention. There have been 10 contractions since 1940. If contractions can not be prevented; how can depressions be prevented? They are a more severe downturn than a recession.

You don't have to prevent a contraction to avoid a depression, you just have to have mechanisms in place that limit how bad contractions get. That is the whole point of most of the policies - and a big part of the Fed's job. And other policies try to limit things that make business cycle volatility worse on both extremes - things like leverage.

Audrey

 

[jIMOh]

on the poll? Oops didn't see the option. Perhaps one of the mods can help by adding one.

Unavoidable in next 1000 years for sure, maybe within next 500, and possibly even next 100, might even be now LOL.

 

[FUEGO]

None of those thing prevent a depression. The question was about prevention. There have been 10 contractions since 1940. If contractions can not be prevented; how can depressions be prevented? They are a more severe downturn than a recession.

Audrey succinctly addressed this, but basically you dampen the severity of the contraction to prevent it from becoming a depression (or at the least, make it a less severe depression).

I don't think anyone is proposing a solution to the problem of recessions. I think they are a natural, beneficial, painful, and necessary part of our economic cycles.

Do you think things like giving people 2 years paid unemployment versus nothing have zero effect on peoples' ability to pay their debts and continue as consumers? Do you think having the full faith and credit of the USA behind $250,000+ of my money on deposit with banks does zero to prevent runs on banks and the cascading effect of bank failures?

I'm not trying to get into a debate on the relative merits of Keynesian vs. Hayek approach to recessions. Just sayin' there's some social safety nets in place today that seem to dampen the volatility of economic cycles. Whether the Keynesian approach is "better" on a macro scale is debatable, but it certainly seems that anecdotally I know people that have kept their houses because of unemployment payments. And business owners that refrained from rushing to the bank to withdraw their own and their company's millions in cash (instead spreading it around to a number of institutions so as to not max out the $250,000 limit).

 

[dex]

You don't have to prevent a contraction to avoid a recession, you just have to have mechanisms in place that limit how bad contractions get. That is the whole point of most of the policies - and a big part of the Fed's job. And other policies try to limit things that make business cycle volatility worse on both extremes - things like leverage.

Audrey

According to the definitions a economic contraction is a recession. There is not definition of a depression except for a severe downturn than a recession. So the difference between a recession and depression is subjective.

I agree that one of the Fed's jobs is 'to try limit things that make business cycle volatility worse on both extremes'. However, since 1913 when the act was enacted they do not have a good track record of doing so. We will continue to have economic contractions of the severe and not so severe type.

If, in the poll the word 'depression' was changed to severe contraction, I think more people would vote towards the 'likely' response.

You might find this interesting.
http://ttheory.typepad.com/files/40ycycledepressions.pdf

 

[FinanceDude]

SURE, we COULD have another Depression, but also:

1)The world could end in 2012 if you believe the Mayan Calendar

2)One of those big supervolcanoes lurking under Yellowstone could erupt

3)An Ice Age could reappear and freeze us all to death

4)North Korea could start a nuclear war, which noone would win

These are things much worse than any Depression..........

 

[bbbamI]

I'm really depressed now. Dawg...may I borrow a med or two?

 

[Pete]

If, in the poll the word 'depression' was changed to severe contraction, I think more people would vote towards the 'likely' response.

If that were the definition, I'd say we've (Americans) been in one, and are still in one.

 

[FUEGO]

If that were the definition, I'd say we've (Americans) been in one, and are still in one.

For a brief period it seems we were experiencing severe contraction. However we are still experiencing this now? Seems like we came out of it a while back and we are experiencing economic expansion now.

One can argue that it is all government stimulated and absent the stimulus we would be in a prolonged continued severe contraction. But the last few quarters we have seen economic expansion.

The Great Depression was characterized by four years of economic contraction, followed by general growth but sustained high unemployment for a few more years, and then in the mid-late 30's the economy weakened again. We haven't had it nearly that bad this time around.

 

[dex]

For a brief period it seems we were experiencing severe contraction. However we are still experiencing this now? .

From the organization that calls them. If no turn up by Dec' 10 it will be 3 years. When you look at U6 (used during the '30s) instead of U3 - unemployment is in the teens.

Business Cycle Dating Committee, National Bureau of Economic Research


CAMBRIDGE, April 12 -- The Business Cycle Dating Committee of the National Bureau of Economic Research met at the organization’s headquarters in Cambridge, Massachusetts, on April 8, 2010. The committee reviewed the most recent data for all indicators relevant to the determination of a possible date of the trough in economic activity marking the end of the recession that began in December 2007. The trough date would identify the end of contraction and the beginning of expansion. Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature. Many indicators are quite preliminary at this time and will be revised in coming months. The committee acts only on the basis of actual indicators and does not rely on forecasts in making its determination of the dates of peaks and troughs in economic activity. The committee did review data relating to the date of the peak, previously determined to have occurred in December 2007, marking the onset of the recent recession. The committee reaffirmed that peak date.

 

[Pete]

One can argue that it is all government stimulated and absent the stimulus we would be in a prolonged continued severe contraction. But the last few quarters we have seen economic expansion.

I would argue that. Stimulus is a nice word for borrowing. I hope people take the prudent action of saving as many of the dollars they print to prepare for inflation, higher taxes, and reduced gov't benefits and services from all this "expansion".

 

[FUEGO]

I would argue that. Stimulus is a nice word for borrowing. I hope people take the prudent action of saving as many of the dollars they print to prepare for inflation, higher taxes, and reduced gov't benefits and services from all this "expansion".

By your logic, the Great Depression stretched well into the 1940's (some of the highest levels of employment our nation has ever seen)? I mean, all that war spending was just government spending, stimulus, borrowing, what have you.

 

[audreyh1]

From the organization that calls them. If no turn up by Dec' 10 it will be 3 years. When you look at U6 (used during the '30s) instead of U3 - unemployment is in the teens.

Business Cycle Dating Committee, National Bureau of Economic Research


CAMBRIDGE, April 12 -- The Business Cycle Dating Committee of the National Bureau of Economic Research met at the organization’s headquarters in Cambridge, Massachusetts, on April 8, 2010. The committee reviewed the most recent data for all indicators relevant to the determination of a possible date of the trough in economic activity marking the end of the recession that began in December 2007. The trough date would identify the end of contraction and the beginning of expansion. Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature. Many indicators are quite preliminary at this time and will be revised in coming months. The committee acts only on the basis of actual indicators and does not rely on forecasts in making its determination of the dates of peaks and troughs in economic activity. The committee did review data relating to the date of the peak, previously determined to have occurred in December 2007, marking the onset of the recent recession. The committee reaffirmed that peak date.

DEX!

I have pointed out several times, that the NBER often takes over a year to pinpoint the exact end of a recession. Don't interpret what they say to mean we are still in one! We are not. They aren't claiming we are in one either. They are just saying they haven't enough data to pin point the exact "trough" date and the beginning of the current expansion yet.

They likely will select early summer 2009 as the end of the Dec 2007 recession as most economists have already. That means it was a 1.5 year recession, and we have already had a year of expansion.

Audrey

 

[FUEGO]

From the organization that calls them. If no turn up by Dec' 10 it will be 3 years. When you look at U6 (used during the '30s) instead of U3 - unemployment is in the teens.

I'm no economic historian, and I honestly wish I knew more in that area.

From some quick searching, I found this:
U3 and U6 Unemployment during the Great Depression | The Economic Populist

U3 and U6 as we collect them today didn't exist pre-1947. At least one comparison has U3 and U6 peaking at 25% and 37% respectively at the worst part of the Great Depression. If so, we are still a loooong way from reaching those levels of unemployment. Even if the U6 during the Great Depression was "just" 25%, we are still a long ways from that level of U6 unemployment.

I really don't know which way the economy is headed. My educated guess is that we have rounded the corner from contraction and we are back into expansion or at the least things have leveled out. Private employers have started to hire. Productivity has been climbing for a while now. GDP growth is positive.

 

[FinanceDude]

I really don't know which way the economy is headed. My educated guess is that we have rounded the corner from contraction and we are back into expansion or at the least things have leveled out. Private employers have started to hire. Productivity has been climbing for a while now. GDP growth is positive.

Depends on where in the US you are........anyone think Detroit is having a resurgence?

 

[FUEGO]

Depends on where in the US you are........anyone think Detroit is having a resurgence?

Sure, in some sectors. Bankrupcty attorneys, DEA agents, repo men, arson investigators, private security, medicaid docs, etc.

 

[FinanceDude]

Like Nancy Pelosi says: "People losing jobs are creating jobs"..........

 

[dex]

DEX!

I have pointed out several times, that the NBER often takes over a year to pinpoint the exact end of a recession. Don't interpret what they say to mean we are still in one! We are not. They aren't claiming we are in one either. They are just saying they haven't enough data to pin point the exact "trough" date and the beginning of the current expansion yet.

They likely will select early summer 2009 as the end of the Dec 2007 recession as most economists have already. That means it was a 1.5 year recession, and we have already had a year of expansion.

Audrey

I got that, however that press release was issued April 12, 2010 so they had the summer 2009 info. I don't know were we stand as to a trough but if we are in a recovery it is a weak one. It is good to have an organization like that to keep us all honest.

 

[dex]

Like Nancy Pelosi says: "People losing jobs are creating jobs"..........

Let's not go there.
Nancy Pelosi Quotes

 

[Coderguy]

SURE, we COULD have another Depression, but also:
1)The world could end in 2012 if you believe the Mayan Calendar

Um... pet peeve. NASA - 2012: Beginning of the End or Why the World Won't End?

I don't think we'll see a depression, though I know I'll see great economic change in my lifetime. Maybe this is the beginning of that. No country can have its citizens going on and on spending money they don't have. Our living habits may have to come back in line with reality; if we refuse to do so we'll keep pushing the credit and then I'll be wrong. New cell phone every 18 months? New TV every 24 months? New car every 3 years? New Computer every year? Depression.

I have a lot to learn though.

 

[audreyh1]

I got that, however that press release was issued April 12, 2010 so they had the summer 2009 info. I don't know were we stand as to a trough but if we are in a recovery it is a weak one. It is good to have an organization like that to keep us all honest.

A weak recovery is still a recovery, which means you are out of recession. What does "honest" have to do with it? - it's just super delayed information making sure every possible revision is in. I suspect it also takes them a while to pin point an exact month which they seem to like to do. Totally backward looking with no use in evaluating the present situation.

As you can see, it took them over 18 months to announce the last two troughs. So it could easily be the end of this year before they have the results for this one.

The December 2007 peak was announced December 1, 2008.
The November 2001 trough was announced July 17, 2003.
The March 2001 peak was announced November 26, 2001.
The March 1991 trough was announced December 22, 1992.
The July 1990 peak was announced April 25, 1991.

Audrey

 

[Pete]

Trying to describe something so complex like our economic situation with one word is impossible. Humans love to do it. I guess it helps us deal with it or understand it. Perhaps it’s because our language has so few different words to describe it. Maybe we just have a need to relate what’s happening now to something we learned in the past.

What we’re experiencing today economically is very different than what we experienced during the depression. Aside from food lines and such, we were an incredible producer and saver nation that suffered a temporary jolt to our economy. Today we’re a bunch of borrowers and consumers. 70% of our economy is buying stuff.

My feeling is this won’t be temporary, at least as far as the U.S. is concerned. No matter how much stimulus you give, there is no sustainable wealth creation in borrowing and buying. I think we’ll have to come up with a new word. My vote is for permacession.